USD/MXN: Mexican Peso flexes muscle against USD, eyeing 17.0000

• USD/MXN approaches the 17.00 barrier, trading at 17.0296, as traders await the Federal Reserve’s monetary policy cues.
• US Dollar Index dropped 0.39% to 104.80, adding headwinds to the Greenback ahead of the Fed’s hawkish expectations.
• Mexican economic data on the horizon: Retail Sales and Inflation figures to be released this week could influence Peso’s trajectory.

The Mexican Peso (MXN) stages a comeback and appreciates against the US Dollar (USD) as traders remain on the sidelines with the Federal Reserve’s monetary policy decision looming. Although speculations for additional tightening remain, the USD/MXN pair approached the psychological 17.00 barrier, exchanging hands at around 17.0000 after hitting a daily high of 17.0974.

USD/MXN pierced the 17.00 barrier as markets eye Fed’s decision and upcoming Mexican data

The market sentiment is downbeat, as seen by US equities. US Treasury bond yields are dropping, a headwind for the US Dollar (USD). The Federal Reserve is expected to keep rates unchanged at the 5.25%-5.50% range and deliver a hawkish message. At the same time, its officials would update their economic projections, including the Federal Funds Rate (FFR) for the remainder of the year, 2024 and 2025. A downward revision to the FFR would be considered dovish, weakening the Greenback.

The money market futures show the Fed’s odds for a November rate hike are at 27% for a quarter of a percent increase, ahead of the Federal Open Market Committee (FOMC) decision. For December, the odds stand at 34.1%.

The US Dollar Index, a gauge of the buck’s value vs. a basket of six currencies, drops 0.39% and sits at 104.80, weighing on the USD/MXN pair.

Aside from this, a scarce Mexican economic docket has not been an excuse for USD/MXN sellers to step in an boost the emerging market currency. Tomorrow, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) will release Retail Sales data and Mexican Inflation on Friday.

Given the current interest rate differential between Mexico and the US favors the former, we could expect further downside in the USD/MXN.

USD/MXN Price Analysis: Technical outlook

From a technical perspective, the break below 17.0000 could pave the way for further downside, but the 50-day Moving Average (DMA) at 17.0123 is holding the fort for USD/MXN buyers. Once cleared, the next stop would be the August 28 swing low of 16.6923. On the flip side, if the pair jumps and reclaims the September 18 high of 17.1812, that would pave the way for a recovery towards the 100-DMA at 17.2007.